WILFORD: If France Is So Concerned About ‘Back Stabbing,’ It Would Drop Its Digital Taxes On American Companies

(Photo by STEFANO RELLANDINI/POOL/AFP via Getty Images)

Andrew Wilford National Taxpayers' Union Foundation
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After the Australian government backed out on a deal with France to supply its Navy with submarines in favor of a U.S./U.K. partnership, France handled the situation with its usual aplomb: they retreated, recalling the French ambassador to the U.S. and describing America’s actions as a “betrayal.” This is pretty silly on its face, but it’s all the more rich coming from a country that has spent recent years trying to levy a special tax on American businesses.

While the French government has derided the submarine deal as a “stab in the back,” it’s hard to blame the Australians for looking elsewhere. Not only had the cost to build the submarines ballooned by about 80% since it was initially signed, but Australia was also frustrated that France went back on its promise to do 90% of the work in Australia (a figure that was subsequently reduced to 60%). There’s also some hilarious reporting about Australian frustrations with French work practices, such as being habitually late to meetings and taking an entire month off in August. Evidently the Aussies needed to be more “understanding” about the French desire for long lunches.

Australia had other reasons to look elsewhere. A 2016 hack of the French company that won the bid raised doubts about the security of the project, and Australia preferred the nuclear submarines the U.S. and U.K. offered over the more expensive and environmentally-unfriendly diesel French variants.

All told, the situation looks more like a failure that France brought upon itself than a betrayal by a trusted ally. That’s more than can be said about France’s attempts to impose digital services taxes (DSTs) on American businesses.

France has justified its push for new digital taxes by claiming that digital companies are undertaxed — a claim that has little basis in fact. The real reason is far more mundane: digital services are dominated by American businesses, and France (as well as much of the rest of the Organisation for Economic Co-Operation and Development) wants to get an (unearned) piece of the pie.

OECD proposals, spearheaded by France, would impose a $100 billion tax burden on an industry defined almost entirely by American innovation. The country’s aggression has proved difficult for both the Trump and Biden administration officials to deter, with even the threat of retaliatory tariffs proving insufficient to cool France’s ardor for ill-gotten revenue. Is targeting one country’s tax base for special, discriminatory taxes how an ally behaves?

Though France’s digital tax efforts have caused significant uncertainty and economic damage for American companies and the millions of people that depend on them for their livelihoods, the U.S. hasn’t recalled its ambassador or otherwise retaliated diplomatically. Maybe the State Department should consider turning the American Embassy on the Champs-Élysées into a McDonald’s. Perhaps that would get their attention?

The common thread between the submarine brouhaha and digital services tax is France lashing out for failures of its own making. It’s not an accident that France and other European countries lack a vibrant tech sector that can compete on the world stage. It is, in fact, a direct result of tax and regulatory climates that suppress innovation and investment.

France should instead look inwards. America places a premium on entrepreneurship and innovation, even though it does not always succeed in using tax policy to maximize these national virtues. Maybe if France did the same, it would not be left feeling cheated every time it’s left in the dust.

Andrew Wilford is a policy analyst at the National Taxpayers Union Foundation, a nonprofit dedicated to tax policy research and education at all levels of government.